When President Barack Obama takes the oath of office as president this January, he’ll face an impending crisis that is as bad, if not worse, than the national debt, which will itself take a long generation to remedy.

I write of course about the potential for widespread bankruptcies of perhaps dozens of municipalities and the effective bankruptcy of at least three and as many as a dozen states. This will present historic difficulties for the nation, and much will depend on effective leadership from the president.

Today, a slow drip of municipal bankruptcy is spreading across the nation, 28 in the past two years alone, with only about half of states authorizing such steps, and hundreds more bankruptcy or bankruptcy-like steps are under serious consideration.

If this weren’t bad enough, bond markets already have identified two states that cannot possibly pay their obligations, and a further four that are in serious trouble. Worse still, beginning in 2014 state and local governments will be required to report their pension obligations like businesses currently must. This means that sometime in the next fiscal year the debt that is several times greater than that which is currently on the books will magically appear on balance sheets.

Among the worst examples will be Illinois, where reported government liabilities will rise from a few thousand dollars per resident to as much as $100,000 per resident. No government without the ability to print money can pay this amount, and this will generate a crisis that will test the republic.

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